February 2024

TRADE, TURMOIL AND GLOBAL TIDES

Trade, turmoil and global tides

As Iran-backed Houthis continue to threaten international shipping lanes and the US applies counter-measures, Tanya Vatsa weights up the ripple effect

Houthi rebels backed by Iran have been making strikes against vessels passing through the Red Sea corridor. While the attacks were initially limited to those owned by Israel or destined for Israeli ports, the Houthis’ recent firing of anti-ship ballistic missiles on several vessels that are neither Israeli owned nor directed towards Israel has signalled an escalation of their initial objective. The move comes in solidarity with Hamas-administered Gaza, which has faced severe military retaliation from Israeli forces, following the October 7 Hamas attack on a festival in the south of Israel.

This ongoing turbulence is aimed at pressurising the international community to push towards an end to Israel’s military action in Gaza.

Maritime trade, historically the backbone of civilisations, continues to fuel a significant portion of the global economy by ensuring efficient connectivity and fluidity in the supply chain.The opening of the Suez canal in 1869, linking the Red Sea to the Mediterranean Sea, was revolutionary for global trade. It seamlessly connected east and west, saving time previously spent circumnavigating the Cape of Good Hope in South Africa. Using that route, it took vessels about three months to sail round the Cape and travel between Europe and Asia. The Suez canal reduced the voyage to three weeks via the Red Sea.

Map of Suez Canal
The opening of the Suez canal in 1869, linking the Red Sea to the Mediterranean Sea, was revolutionary for global trade

Twelve per cent of global trade traffic passes through the Red Sea corridor annually, including 10 per cent of seaborne oil shipments. This corridor is functional because of the two major choke points at its two ends: the first is the Bab el-Mandeb strait, which connects the Indian Ocean with the Red Sea via the Gulf of Aden, providing access to the most coveted Red Sea trade route leading to the Mediterranean Sea through the second point, the Suez Canal.

The economic importance of this route was illustrated when the shipping container MV Ever Given blocked the Suez Canal, with the resulting loss totalling US$14  to 15 million for each day of the blockade.

However, the current issue lies at the intersection of global politics and economics, spilling beyond the regional boundaries involving inter-continental stakeholders.

Twelve per cent of global trade traffic passes through the Red Sea corridor annually

Houthis are a rebel Shia military group in Yemen who call themselves Ansar Allah. The political uproar caused after the Arab spring provided a fertile breeding ground for the rebel group which vehemently fought against former President Saleh’s internationally recognised government,  supported by Saudi Arabia and the United States. Currently the Houthis (named after their founder Hussein Al-Houthi) occupy one-third of Yemen’s territory, including the capital Sanaa.

Their interference with the Red Sea shipping lanes is an act of solidarity with their Palestinian allies in Hamas, which is also supported by Iran. They have sought to disrupt global supply chains by making it difficult for vessels to pass. This becomes significantly chaotic in terms of commerce and trade for two reasons. Firstly, turnaround times for vessels through the alternative route, round the cape of Good Hope, are substantially longer, adding to fuel requirements and other necessary costs. The impact is already visible as several major shipping companies have rerouted their vessels, including those from Denmark, Norway, Germany and South Korea. The second issue arises due to the drought in Central America, resulting from an El Nino situation in the Pacific. This has caused a drastic drop in the Panama canal’s water levels, reducing traffic and hence the amount of trade which passes through this strategic waterway. With the Panama canal functioning at reduced capacity, the Houthis activity on the Red Sea route has proved perilous for global commerce, specifically inter-continental trade including energy supply chains. The blockade has already impacted Israel’s Port of Eilat on the Red Sea, which is experiencing a 85 per cent decrease in activity.

The Houthis possess anti-ship ballistic missiles, many of which have been intercepted by Israel

The United States has taken a firm stand and started an offensive against the Houthis to secure the shipping lanes. Washington has launched ‘Operation Prosperity Guardian’ to counter the Houthi presence and ensure safe transit routes by destroying their drones and launching missiles. While America is supported by some European countries, as well as Bahrain and the Seychelles, the absence of overt support from Saudi Arabia and Egypt is concerning. Egypt, in particular, has been suspiciously quiet, despite the losses it has incurred due to the attacks, given the large amount of revenue it generates from the Suez canal.

Saudi Arabia, on the other hand, is already involved in the war in Yemen against the Houthis but remains neutral on this matter and has even called for a prevention of escalation in the region. It can be seen walking a tightrope between its customary support for Palestine and its arch rivalry with Iran and its allies. But unlike Cairo, Riyadh has secured its commercial interests by approving a land corridor between the Gulf states and Israel, which allows the movement of goods from ports in the UAE and Bahrain to reach Haifa port in Israel through Saudi Arabia and Jordan, without the need for the shipping route. The Arabs seem to be tossing the coin of diplomacy, weighing its economic certainty against conventional regional strategy.

The Houthis are a rebel Shia military group in Yemen who call themselves Ansar Allah
The Houthis are a rebel Shia military group in Yemen who call themselves Ansar Allah

As for the counter-attack by the West to restore the commercial flow through the Red Sea route, it may not be as fruitful as anticipated. The Houthis have withstood heavy bombings and attacks by the Saudi-US coalition for over a decade and have become more sophisticated in their drone technology and weapon systems. They also possess anti-ship ballistic missiles, many of which have been intercepted by Israel. The prolongation of the turmoil is testament to their increased resistance capabilities and their novel weapon systems. This may also point towards a stronger and more resolute ‘axis of resistance’ which includes all the allies of Iran – the Houthis in Yemen, Hezbollah in Lebanon and Hamas in Gaza. Israel is already fighting the axis on several fronts, with most of its forces and resources engaged in the ongoing conflict.

The Houthis have shaken the global commercial and financial systems by targeting a crucial trade route, demanding an end to the conflict in Gaza and simultaneously making it clear that the interconnectedness of the world ensures that transgression of national boundaries is bound to have ripple effects far and wide in every direction. The Israel-Hamas conflict is already resonating throughout the globe, either through proxies (the US and its allies, and Iran and its axis) or through nations calling for a humanitarian ceasefire at the International Court of Justice. The Houthis have chosen a third path and, while the duration of such chaos is not certain, with the direct retaliation by the US, they have acquired a relevance and legitimacy that had been,up to then, officially denied.

Tanya Vatsa, a law graduate from National Law University, Lucknow and an incoming LLM candidate at the University of Edinburgh, is a former assistant advocate. She is currently a geopolitical analyst with The Synergia Foundation, an India-based think tank. Her writing on international relations has been published by the Diplomatist, International Policy Digest and The Kootneeti

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